(By Rich Bieglmeier) My, My, My once bitten, bulls turn shy. It didn't take long for Wall Street to throw a selling tantrum following Ben Bernanke taking the money ball home. It didn't help that economic news from China and Europe continues to slide like a toboggan down an icy slope.
The Philadelphia Fed manufacturing report didn't help much either. The consensus was for the survey results to be a reading of 0.5, up from last month's disappointing -5.8. No such luck folks, the regional manufacturing report scored -16.6. The lowest any economist guessed was -3.0.
Taking a look at the NASDAQ's chart, iStock sees the index hitting a double dose of resistance at 2940. First of all, the index hit the upper edge of a wedge/channel, and a line that takes us back to February.
On the plus side of the day's dismal performance, the NASDAQ stopped its fall on the bottom edge of the wedge/channel. If the index falls on Friday, then it's probably headed back to its 200-day average of 2783, maybe 2800 by the time it gets there.
The market is likely to get off to a shaky start to Friday, especially financial stocks. Moody's Investors Service downgraded 15 banks following the closing bell, and Italian Prime Minister, Mario Monti says "we have a week to save the eurozone" - so much for moving off the front pages.
To get a sense of what to expect, we examined 10 years of NASDAQ history of when it breaks its 200-day average for the first time in a correction following a rally. Typically one of two things happens. The index rallies after the first breach, moving higher than the key benchmark, only to fall back, below the 200-day mark. Most times the second or third time under water marks the bottom and the index marches higher.
The other most common occurrence is scary; everything goes to h-e double hockey sticks. Ordinarily, it is crisis mode, and the bottom falls out.
The good news is that the bob, weave, bob some more and go higher scenario was two to three times more common than the TIMBER! variety. Although, with so many potential crisis balls in the air, all the central bank jugglers need to do is misplay one and the mighty oak is coming down.
Goldman Sachs, the same one that said the Federal would go big, says it is time to go short the S&P with a target of 1285. That would put the index slightly below its 200-day. If the broker is right this time around, what happens from there will tell if its crisis or rally mode.
One thing investors must keep in mind is that the market is forward looking. We are about six months from the turn of the year. As it stands now, market participants haven't priced in the fiscal cliff or the looming pre-election debt ceiling debate. Some point soon, probably real soon, the tidal wave of tax increases will be factored into Wall Street's algorithms.